Ailing Investment Drivers Could Continue to Drag on Economic Growth: Morgan Shidan

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Analysts say the recent raft of disappointing economic data points to a slowdown in key investment drivers that will continue to weigh on China’s near-term growth.

Data released by China’s National Bureau of Statistics on 14 November indicates that social fixed asset investment for the first ten months of 2017 saw year-on-year growth ease to 7.3% from 7.5% for the first nine months, with infrastructure investment (excluding power, heating, gas and water facilities)  sliding 0.2 percentage points to 19.6%.

Water facilities, public facilities, roads, and rail transport all saw declines in investment to varying extents.

Zhang Jun, chief economist with Morgan Shidan Lihuaxin Securities, said to Caixin that there is little likelihood of Beijing ramping up infrastructure stimulus spending prior to the end of the year, given that China should have no problem meeting its 6.5% full-year growth target.

For this reason infrastructure investment is likely to further ease over the next two months.

Manufacturing investment for the first ten months of 2017 also saw a slightly decline, easing to 4.2% from 4.1% for the first nine months for the fourth consecutive month of slowdown, and placing further weight on growth in fixed asset investment.

Zhang said that the continued slowdown in manufacturing investment despite a revival in demand and rising industrial goods prices indicates that financing costs for actors in China’s real economy are still increasing as a result of Beijing’s ongoing deleveraging campaign.

Despite Beijing’s efforts to ensure that financing “turns to the real from the empty,” most private enterprises as well as small and medium-sized enterprises are still finding financing either difficult to obtain or expensive, which is significantly impeding the pace of their expenditures.

While growth real estate investment provided a steady support to fixed asset investment levels across the first three quarters, growth for the first ten months edged lower to 7.8%, while growth in real estate sales eased for the fourth consecutive month.

According to Zhang Jun, tightening regulation means that Chinese households are finding it increasing difficult to pour funds into the real estate market via semi-licit means such as diverting real estate loans.

For this reason real estate sales will continue to ease in future, and real estate investment can also be expected to see further slowing.

Morgan Shidan sees Q4 GDP growth easing to 6.6% – 6.7% from 6.9% in the third quarter, and full year GDP growth for China of around 6.8%.

 

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